Is Amazon Stock a Buy as Cloud Revenue Continues to Surge?

Amazon's third-quarter earnings report, released after the market closed on October 29, showcased a strong performance across various segments. Despite the stock's lackluster performance this year, with a modest 45% increase over the past five years in a strong bull market, I believe this could be an opportune moment to invest in the company.

Amazon's cloud computing unit, AWS, played a pivotal role in driving the company's growth. AWS revenue surged by over 39% to $46 billion, surpassing the $45.3 billion consensus, marking its fastest growth in nearly five years. The company highlighted the increasing popularity of its Bedrock inference service, noting that Fortune 500 companies are now spending nearly seven times as much on Bedrock as they did last year.

Amazon's chip business also saw a significant boost, with revenue commitments for Graviton and Trainium chips more than doubling compared to the previous year. The company plans to start selling Trainium chips outside of AWS starting late 2027 due to high demand. Amazon's e-commerce operations, particularly its North American sales, saw a 6% year-over-year increase to $112.9 billion.

International sales also grew by 5%, or 8% in constant currencies, to $43.1 billion. However, advertising revenue growth slowed down, with a 12% increase to $19.6 billion, a significant deceleration from the 26% growth seen in the previous quarter. Despite this, Amazon's operating income in the e-commerce segment jumped 80%, reaching $8.7 billion, and its international segment's operating income surged 33% to $1.6 billion.

Amazon reported revenue of $201.9 billion, slightly missing the $202.25 billion analyst consensus, while earnings per share fell to $1.89, missing the $1.97 consensus. The company's substantial capital expenditure of $75.9 billion in Q3 and plans for $220 billion in capex this year further highlight its aggressive investing strategy.

Amazon expects AWS revenue to grow by 40% in each of 2027 and 2028, with the potential to become a $1 trillion business in five to 10 years. Given the strong returns on investments in AI infrastructure and the impressive operating leverage in e-commerce, Amazon appears to be a compelling buy, trading at a forward price-to-earnings ratio of 23 times 2027 analyst estimates.